SEOUL- South Korea’s factory activity shrank for a third straight month in September, and by the sharpest pace in more than two years, amid weakening global demand, a private-sector survey showed on Tuesday.
The S&P Global purchasing managers’ index (PMI) posted a slight fall to a seasonally-adjusted 47.3 in September from 47.6 in August, marking the third month in a row under the 50-mark that separates expansion from contraction.
The index extended declines for a fifth straight month and hit the lowest level since July 2020, indicating the sharpest pace of contraction in 26 months.
Output shrank for a fifth month and by the most since June 2020, with some companies also affected by a typhoon that hit industrial areas of South Korea, according to the survey.
The subindexes showed new orders fell for a third straight month and exports decreased for a seventh month, although both declines were smaller than the previous month. There were also signs of declines in the semiconductor industry as deteriorating demand for goods curtailed the chip sector, the survey noted.
The challenges from weaker demand were worsened by continued easing of supply chain bottlenecks and price pressure.
Suppliers’ delivery times worsened by the least since January 2020, while input and output prices rose by slowest since early 2021.
“Brought all together, the immediate outlook for the South Korean manufacturing sector appears bleak,” said Joe Hayes, senior economist at S&P Global Market Intelligence.
“External factors such as the weakening global economy will certainly challenge goods producers’ order books, while also keeping pressure on the won – thus pushing up imported inflation – as the dollar benefits from its safe haven status.”
Manufacturers still remained optimistic over the coming year for output, but the level of optimism fell for a fourth month to the weakest since October last year.
Meanwhile, US manufacturing activity grew at its slowest pace in nearly 2-1/2 years in September as new orders contracted amid aggressive interest rate increases from the Federal Reserve to cool demand and tame inflation.
The Institute for Supply Management (ISM) survey on Monday also showed a measure of manufacturing employment contracted last month for the fourth time this year. A gauge of inflation at the factory gate decelerated for a sixth straight month.
ISM Manufacturing Business Survey Committee chair Timothy Fiore said “companies are now managing head counts through hiring freezes and attrition to lower levels, with medium- and long-term demand more uncertain.”
Fiore, however, noted that there were no comments from firms about large-scale layoffs, which he said indicated that “companies are confident of near-term demand.” The Fed’s tighter monetary policy campaign has raised fears of a recession next year, triggering a sharp sell-off on the stock market.
“In many ways, this is the cooling economy the Fed would like to see,” said Will Compernolle, a senior economist at FHN Financial in New York. “It could, however, merely reflect a consumer shift away from goods towards services.”
